Established September 2006

OC Republican John Campbell successfully lobbies for more government handouts

The loan limit on FHA loans is now $729,750. The venerable FHA which was founded to provide loans for low to middle income Americans is now being used to subsidize the mortgages and the house prices of high wage earners in places like Irvine.

The government should get out of the housing market. Even the government knows this, but when removing its support causes house prices to weaken, so does the resolve of those in government to get out of the housing market.

President Obama signed into law a government spending bill Friday morning effectively reinstalling higher conforming loan limits for the Federal Housing Administration through the end of 2013. The House passed the minibus spending bill 298-121 Thursday afternoon, and the Senate approved it 70-30 Thursday night. Effective Friday, FHA can insure loans up to $729,750 from $625,500 in the most expensive neighborhoods. In 2008, Congress elevated the limits for the FHA, Fannie Mae and Freddie Mac, but expired Oct. 1. The Senate approved an amendment to the bill earlier in the month that would have reinstalled the limits for Fannie and Freddie as well. But a joint appropriations committee cut the government-sponsored enterprises out, leaving the FHA in.

It can be argued this is an interim step toward getting the government out. The costs on FHA loans are higher, so it will provide some additional demand, but only by high wage earners who can still support a $729,750 loan after paying the onerous FHA loan premium. Private money will still be needed to fill the gap, but as I demonstrated in Lower conforming limit causes 84% decline in loan volume, the gap is currently a chasm.

By signing the bill, the Obama administration back-tracked somewhat from a white paper put out in February. The paper put forth three options for the housing finance system, precluded by the expiration of the higher conforming loan limits in order to begin ushering private capital back to the market. FHA Acting Commissioner Carole Galante warned senators Thursday that the government should be looking to shrink the FHA market share. “We maintain that it is appropriate to take a step back on the loan limits,” Galante said.

It's appropriate to keep house prices inflated with government supports? It's appropriate to have the government assume the losses that should accrue to the banks?

Rep. John Campbell, R-Calif., made the case on the House floor Thursday to reinstall the limits for Fannie and Freddie as well, citing concerns that the housing market is not healthy enough to be taken off the government lifeline. “Even now, private lenders remain incredibly risk-averse, hesitating to provide long-term, fixed-rate mortgages to the vast majority of the market,” Campbell said. “Until Congress decides how to move forward with broad reform to fix our broken housing finance system, we should not dismantle the few remaining support systems that are preventing the housing industry from collapsing further.”

I first reported congress passed this legislation last month. In that post, I made the following observation: “California Republicans should hide their faces in shame. This is appalling. These Republicans call for reducing the footprint of government and simultaneously vote to keep the house prices inflated in their districts with more government largess.” John Campbell is not a conservative, or has the term conservative been redefined to include maximizing government handouts for high wage earners and rich people? John Campbell is a disgrace to conservatives and to the Republican party.

Sen. Bob Corker, R-Tenn., shook his head Thursday, clearly frustrated at the decision his colleagues made. “The white paper and a bill are two very different things,” Corker said. “I am absolutely so discouraged at Congress in lacking the courage to deal with this issue that we all know needs to be dealt with.” Write to Jon Prior. Follow him on Twitter @JonAPrior.

Bob Corker is my new hero. Thank you for telling it like it is.

Should you or shouldn't you?

On principle, I wouldn't want to use an FHA loan above $417,000. In reality, I might.

Even now, I take advantage of government-backed loans to buy properties being rented to government subsidized renters. My moral aversion to government intervention aside, if that is the only game in town, I will play it if necessary. And it is necessary to buy a property these days.

In late 2013, I will probably buy a house, hopefully in Irvine. Since I am spending all my money on cashflow properties, I probably won't have 20% to put down on a property. I may use an FHA loan.

I recognize this is one more government prop which when removed will likely result in diminished demand and lower prices, but if I don't have 20% to put down, it may be the only option I have. I know I am not alone in this regard.

At low interest rates, many people who live and rent in Irvine could afford a mortgage greater than $417,000 or even $625,000. Many of those people will use FHA loans over the next two years, and their buying will provide some artificial support to prices.

Sometimes I wonder if the government props will ever be removed. If I wait until they all are, I may not buy a house in my lifetime. Many of these props may never go away. It's not the market I want to operate in, but it is the only housing market we have. If you want to own, you have to deal with it.